From Deposits to Stocks, Check Your Insurance

INSURANCE can make a big difference. Ask the thousands of depositors who watched their local savings and loan association go belly-up back in the late 1980s. Uncle Sam protected most of their money.

Last year, customers of some six banks, 15 small credit unions, and four investment firms saw their institutions enter various stages of insolvency.

Federal and private insurance agencies have kicked in billions of dollars to offset losses on savings deposits and investment accounts over the past decade. Fortunately, insolvency levels have fallen dramatically.

"It looks like the banking and thrift crisis is over," says a spokesman for the Federal Deposit Insurance Corp. (FDIC), in Washington.

Nonetheless, it is important to be certain that your own financial institutions carry insurance backing. Moreover, knowing the limits of that backing - how much insurance is available and under what conditions - can help a person structure his or her financial portfolio, experts say.

For most people, there are three main national insurance programs to watch:

Federal Deposit Insurance Corporation): The FDIC, a US government agency, now insures accounts up to $100,000 at commercial banks, savings banks, and thrift institutions.

The program actually encompasses two separate funds, the Bank Insurance Fund (BIF), for the bank side of the insurance pool, and the Savings Association Insurance Fund (SAIF) for the S&L side. In practical terms, however, all that a customer really needs to know is whether the institution carries FDIC backing. Usually there will be an FDIC sticker on the door.

Are the savings pools safe?

Yes, but with some reservations. Congress required that the two funds have a reserve ratio of 1.25 - that is, the amount that the insurance pools must carry to offset losses, divided by total assets being insured.

The Bank Insurance Fund's ratio is now at 1.3 percent. The Savings Association Insurance Fund, however, is only at 0.47 percent. Part of the reason for the lower S&L amount is that regulators have been paying out huge sums - up to $800 million annually - to meet interest payments on 30-year bonds issued in 1987 to offset the thrift crisis of that period.

"The [S&L] fund is seriously undercapitalized," the FDIC spokesman concedes. As a result, the FDIC is attempting to raise almost $6 billion from the thrift industry to rebuild fund levels.

Still, the thrift industry is now considered to be in fairly good shape, with the weakest institutions having been absorbed by stronger S&Ls. No thrift institution required an FDIC insurance bailout in 1995.

Even though FDIC accounts have a $100,000 limit, there are ways of boosting those levels. Individual Retirement Accounts (IRAs) are treated separately from regular savings accounts. Thus, a single person could have two $100,000 accounts, one a regular deposit, one for an IRA. If married, a couple could have five or more accounts of $100,000 each. Example: Spouses could each have a regular $100,000 account under their own name; they could have a joint account; and each could have an IRA account.

It is also possible to have other insured accounts, called testamentary accounts, which are irrevocable trusts, in the name of a beneficiary.

Still, you should check with a bank or S&L officer to make certain that each of your accounts is covered by FDIC insurance.

National Credit Union Share Insurance Fund (NCUSIF): The federal agency overseeing credit unions is the National Credit Union Administration (NCUA). The NCUSIF is the federal insurance fund. Credit unions will usually display a sticker showing the NCUA letters, as well as the fund letters - NCUSIF. Accounts are insured up to $100,000 each and can be structured along the lines of the examples noted above.

Credit union insurance reserves have been much higher than for banks and S&Ls. The NCUA returned some $100 million in excess reserves to credit unions this past November. It may also have to return excess reserves this year, a spokeswoman says.

Securities Investor Protection Corporation (SIPC): Stocks, bonds, and money-fund shares at brokerage houses are insured by SIPC, a private corporation. SIPC is not a US government agency. Still, accounts are protected up to $500,000. But investors are sometimes confused as to what that means. The corporation will ensure that you get your securities back - not protect you against market losses.

Thus, if the market dips on your holdings, say 100 shares of XYZ Company, you won't get your losses on that investment back. But if the brokerage house that holds your 100 shares collapses, you will get back 100 shares of XYZ Company. Commodity futures contracts are not insured under SIPC.

SIPC has insurance reserves of about $1 billion, plus a credit line with banks of about $1 billion and another credit line from the US Treasury of $1 billion. A brokerage will often feature the SIPC decal on its front door.